Correlation Between NYSE Composite and Clearbridge Large

Can any of the company-specific risk be diversified away by investing in both NYSE Composite and Clearbridge Large at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining NYSE Composite and Clearbridge Large into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NYSE Composite and Clearbridge Large Cap, you can compare the effects of market volatilities on NYSE Composite and Clearbridge Large and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in NYSE Composite with a short position of Clearbridge Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Clearbridge Large.

Diversification Opportunities for NYSE Composite and Clearbridge Large

0.66

Correlation Coefficient

NYSE Composite  Clearbridge Large

Poor diversification

The 3 months correlation between NYSE and Clearbridge is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Clearbridge Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clearbridge Large Cap and NYSE Composite is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on NYSE Composite are associated (or correlated) with Clearbridge Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clearbridge Large Cap has no effect on the direction of NYSE Composite i.e., NYSE Composite and Clearbridge Large go up and down completely randomly.

Pair Corralation between NYSE Composite and Clearbridge Large

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.59 times more return on investment than Clearbridge Large. However, NYSE Composite is 1.69 times less risky than Clearbridge Large. It trades about 0.02 of its potential returns per unit of risk. Clearbridge Large Cap is currently generating about -0.14 per unit of risk. If you would invest  1,999,882  in NYSE Composite on December 2, 2024 and sell it today you would earn a total of  2,937  from holding NYSE Composite or generate 0.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

NYSE Composite  vs.  Clearbridge Large Cap

Pair Trading with NYSE Composite and Clearbridge Large

The main advantage of trading using opposite NYSE Composite and Clearbridge Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite position performs unexpectedly, Clearbridge Large can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Clearbridge Large will offset losses from the drop in Clearbridge Large's long position.

The idea behind NYSE Composite and Clearbridge Large Cap pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..